A day of good cheer

BambiFrancisco

SAN FRANCISCO (CBS.MW) - After a couple weeks of disappointing earnings news, a few good reports, notably from Amazon and Ariba, helped draw attention to the Internet and tech sector.

And with this current momentum in place, the timing couldn't be better for some sell-side analysts to introduce new price targets.

Ariba
ARBA
shares rose 51 cents, or 17 percent, to $3.48 by the close. Amazon.com
AMZN, +2.01%
shot up 19 percent to $16.79, after announcing narrower-than-expected losses as sales outside the U.S. and sales of its core books, music and video division saw healthy gains. Deutsche Bank Securities raised its price target to $19 from $14. Bear Stearns also raised its price target to $19. Merrill Lynch and W.R. Hambrecht spoke positively about the retailer's quarter, but cautioned their clients that valuation is still a concern. See full story on Amazon.

Amazon.com management also said that it's seeing activity in its "Marketplace" segment, which is its business of brokering the sale of new and used items. Amazon receives a fee to facilitate the sale, much like EBay
EBAY, +0.07%
Shares of EBay
EBAY, +0.07%
declined modestly in Wednesday's trading.

Amazon does deserve applause after demonstrating operational efficiencies. Bear Stearns expects Amazon to lose $14 million in 2002, compared to a loss of half a billion in 2001 and more than a $1 billion in 2000.

Ariba appears to have stanched the bleeding as well.

Meanwhile, Openwave Systems
OPWV
produced results that fell short of expectations and at least one analyst lowered expectations based on Openwave's outlook. For calendar 2002, U.S. Bancorp Piper analyst Edward Jackson lowered his revenue estimates and widened his loss expectations.

Even so, Openwave Systems, which generated $83 million in sales in the just-reported quarter, saw its shares leap 22 percent to $5.84.

Ariba bucks the trend

Turning in one of the better performances in the seasonally weak first quarter, Ariba managed to post break-even results as the software company reported better-than-expected sales and operational efficiencies.

Ariba said it lost $154 million, or 60 cents per share, in its second quarter. This compares to a loss of $1.8 billion, or $7.60 per share, in the same period a year ago. Excluding noncash and special charges, Ariba earned $1.1 million, or breakeven on a per-share basis. Analysts expected Ariba to lose 1 cent. Ariba saw second-quarter sales fall 37 percent to $57.2 million from $90.65 million a year ago. Quarterly sales exceeded Street estimates of $55.39.

"Sourcing continues to gain traction," said Jim Frankola, Ariba's CFO, in an interview with CBS.MarketWatch.com. Ariba secured a number of new customers, including Honeywell and Italian utility ENEL, because of its sourcing product, which was launched in September of last year, said Frankola. In this market, Frankola said Ariba competes most often with FreeMarkets
FMKT

Ariba's software sourcing product is part of the company's suite of software and services that equip purchasing managers to make cost-efficient decisions

Additionally, Ariba's relatively new software products that enable corporations to manage processes such as invoicing or contracting were sold to existing customers. Only a handful of Ariba's customers buy the overall suite of software products, called Ariba Spend Management.

Frankola said Ariba expects to break even in the current quarter on revenue of about $57 million to $58 million.

After a major restructuring in the fall and a drop of $7 million in operating expenses in the quarter from the final quarter of last year, Frankola said he didn't see Ariba raising those costs to hire new sales staff any time soon.

"At this point, it's still premature to go beyond" the current quarter, Frankola said.

Ariba is one of the few software companies that's met or exceeded their March estimates, noted John Ederer, an analyst at Pacific Growth Equities.

For instance, I2 Technologies
ITWO
Commerce One
CMRC
SeeBeyond
SBYN
and Aspen Technology, a supply-chain software company for process industries, all issued warnings.

Of all the companies mentioned, Aspen is the only company which has not yet reported.

"The common theme across this software group is the general weakness in IT spending and deferral of business at the end of the quarter," said Ederer. "It was difficult to get customers to sign off on purchase orders at the end of March."

WebMethods
WEBM
reports on Thursday and the company pre-announced on the positive side.

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